The M&A process, characterised by its complexity and countless variables, is highly sensitive to the element of time. In fact, there is no phrase more common in M&A circles than “time kills deals”.
As economic conditions have tightened, organisations, investors and business owners have become increasingly risk averse. For M&A transactions, this conservatism has caused lengthy delays and reduced the success rate of deals that lack adequate planning and management.
This article discusses the importance of managing an efficient M&A transaction and provides insights into the role advisors play in maximising the chance of a successful transaction.
How time can take a toll on M&A
1. Changing macro environment
Industries evolve, economic conditions fluctuate, and regulatory landscapes transform. The longer the deal-making process takes, the greater the risk that external factors will impact the value proposition or strategic fit of the transaction.
2. Operational disruptions
Delays in finalising a deal allow more time for a rare, or unusual operational event to occur. Serious injuries, a loss of a key client or the resignation of a key employee may significantly impact the transaction rationale.
3. Deal fatigue
Comprehensive due diligence is a cornerstone of successful M&A, providing a thorough examination of financial, legal, and operational aspects. However, prolonged due diligence processes can result in diminishing returns. Key stakeholders may lose interest, financial conditions may change, or unforeseen issues may arise.
4. Financing risks
Extended timelines can introduce uncertainty into the financing process, with interest rates, credit conditions, and market sentiments all subject to change. Any change to the cost of capital can place strain on the originally projected financial returns.
5. New competitors
Prolonged transaction processes provide competitors with opportunities to enter the scene, leading to the potential loss of a competitive advantage that drove the M&A decision in the first place.
Efficiency in M&A transactions
Actively managing the M&A process and leveraging the expertise of advisors can increase the likelihood of a successful, timely transaction. Overcoming the challenges that time can impose on the M&A landscape is imperative.
An experienced advisor may do this through:
1. Efficient planning and execution
Dedicated M&A advisors bring expertise in structuring and executing deals efficiently. They can set clear timelines, establish milestones, and actively manage the process to avoid unnecessary delays.
2. Proactive due diligence
Experienced advisors pour hundreds of hours into proactive due diligence, identifying and resolving potential issues or red flags before pitching a business to buyers. This approach minimises surprises during due diligence and reduces the risk of prolonged negotiations.
3. Parallel workstreams
Seasoned advisors implement parallel workstreams, managing multiple aspects of the deal simultaneously (e.g. financial, tax, commercial, legal, HR and environmental due diligence). This approach ensures that the deal progresses on multiple fronts, mitigating the risk of bottlenecks.
4. Contingency planning
Advisors bring a wealth of experience and understand the “tricks of the trade”. They notice shifts in a buyers behaviour and are skilled in creating contingency plans to maintain momentum as challenges arise.
5. Regular communication
Advisors facilitate transparent and open communication among all stakeholders. Daily communication helps manage expectations and prevents misunderstandings that could lead to unnecessary delays.
In the world of M&A, time is a double-edged sword. While thoroughness is crucial, prolonged timelines can introduce a host of risks that threaten the success of a deal. Executives and business owners are increasingly recognising the importance of engaging dedicated advisors to balance diligence with efficiency.